Macklowe Portfolio Fetches Almost $4 Billion

In the largest commercial real estate acquisition deal of the year, Boston Properties reports it is buying a portfolio of four New York City office properties, including the General Motors Building, from Macklowe Properties for a total price of about $3.95 billion. The deal came just in the nick of time to save Macklowe from collapse following Harry Macklowe’s purchase of part of the Equity Office Properties portfolio for $7 billion last year at the height of the market.

The Boston-based office real estate investment trust (REIT) is financing the purchase with about $1.46 billion in cash, the issuance of a $10 million interest in Boston Properties Limited Partnerships, an affiliate of Boston Properties, and by taking on about $2.5 billion in fixed-rate debt.

Boston Properties also is looking for joint-venture partners to finance the deal. After a joint venture deal is finalized, the REIT expects to own about a 49% stake in the properties for which it plans to provide property management and leasing services.

The GM building, the crown jewel of the portfolio, is a 2 million sq. ft. property. On the GM building alone, Boston plans to take on $1.9 billion of secured and mezzanine loans at a weighted average interest rate of 5.97%.

JP Morgan’s equity REIT research group estimates that the price for the GM building alone is about $2.8 billion, or $1,400 per sq. ft., making for a capitalization rate of about 4.5%. “With in-place rents at the GM building and even the other three buildings likely significantly lower than market — we would not be surprised to find out that in-place rents are 50% to 75% of market — the portfolio offers up a pipeline of long-term growth opportunities as leases expire,” according to JP Morgan analysts in a recent report. The market speculation is that the joint venture partners will be Middle Eastern investors and Goldman Sachs, according to JP Morgan.